iHeartMedia 2007 Annual Report Download - page 55

Market Risk
Interest Rate Risk
At December 31, 2007, approximately 20% of our long-term debt, including fixed-rate debt on which we have entered into interest rate
swap agreements, bears interest at variable rates. Accordingly, our earnings are affected by changes in interest rates. Assuming the current level
of borrowings at variable rates and assuming a two percentage point change in the year’s average interest rate under these borrowings, it is
estimated that our 2007 interest expense would have changed by $26.0 million and that our 2007 net income would have changed by
$15.3 million. In the event of an adverse change in interest rates, management may take actions to further mitigate its exposure. However, due
to the uncertainty of the actions that would be taken and their possible effects, this interest rate analysis assumes no such actions. Further, the
analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment.
At December 31, 2007, we had entered into interest rate swap agreements with a $1.1 billion aggregate notional amount that effectively
float interest at rates based upon LIBOR. These agreements expire through March 2012. The fair value of these agreements at December 31,
2007, was an asset of $11.4 million.
Equity Price Risk
The carrying value of our available-for-sale and trading equity securities is affected by changes in their quoted market prices. It is
estimated that a 20% change in the market prices of these securities would change their carrying value at December 31, 2007 by $45.3 million
and would change accumulated comprehensive income (loss) and net income by $16.6 million and $10.1 million, respectively. At
December 31, 2007, we also held $11.2 million of investments that do not have a quoted market price, but are subject to fluctuations in their
value.
We maintain derivative instruments on certain of our available-for-sale and trading equity securities to limit our exposure to and benefit
from price fluctuations on those securities.
Foreign Currency
We have operations in countries throughout the world. Foreign operations are measured in their local currencies except in hyper-
inflationary countries in which we operate. As a result, our financial results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which we have operations. To mitigate a portion of the exposure of
international currency fluctuations, we maintain a natural hedge through borrowings in currencies other than the U.S. dollar. In addition, we
have U.S. dollar — Euro cross currency swaps which are also designated as a hedge of our net investment in Euro denominated assets. These
hedge positions are reviewed monthly. Our foreign operations reported net income of $90.4 million for the year ended December 31, 2007. It is
estimated that a 10% change in the value of the U.S. dollar to foreign currencies would change net income for the year ended December 31,
2007 by $9.0 million.
Our earnings are also affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of our
investments in various countries, all of which are accounted for under the equity method. It is estimated that the result of a 10% fluctuation in
the value of the dollar relative to these foreign currencies at December 31, 2007 would change our 2007 equity in earnings of nonconsolidated
affiliates by $3.5 million and would change our net income for the same period by approximately $2.1 million.
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(2) The balance includes the $644.9 million principal amount of the 8% Senior Notes due 2008 discussed above.
(3) Other long-term obligations consist of $70.5 million related to asset retirement obligations recorded pursuant to Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations, which assumes the underlying assets will be removed at some period
over the next 50 years. Also included is $103.0 million related to the maturity value of loans secured by forward exchange contracts that
we accrete to maturity using the effective interest method and can be settled in cash or the underlying shares. These contracts had an
accreted value of $86.9 million and the underlying shares had a fair value of $124.4 million recorded on our consolidated balance sheets
at December 31, 2007. Also included is $75.6 million related to deferred compensation and retirement plans and $23.5 million of various
other long-term obligations.
(4) Excluded from the table is $144.4 million related to the fair value of cross-currency swap agreements and secured forward exchange
contracts. Also excluded is $294.5 million related to various obligations with no specific contractual commitment or maturity,
$237.1 million of which relates to unrecognized tax benefits recorded pursuant to Financial Accounting Standards Board Interpretation
No. 48, Accountin
g
f
or Uncertaint
y
in Income Taxes.